Israel Finance Minister Vows to Weaken Shekel With Flug

Israeli Finance Minister Yair Lapid said he will work with designated Bank of Israel Governor Karnit Flug to combat the shekel’s gains. The currency weakened after he spoke.

“We are going to do everything in our power to make sure we are weakening the shekel,” Lapid said in an interview today at a conference outside Tel Aviv. “It’s too strong.” He declined to say what measures they may take or if he had a target for the currency.

The shekel’s strength is hurting the growth of Israel’s export-oriented economy. It has gained about 6 percent against the dollar this year, making it the strongest among 31 major currencies.

“Lapid’s comments affirm the stance of the finance ministry and the central bank that they will take more measures to weaken the shekel, which is an alert to investors,” Rony Gitlin, head of spot trading for Tel Aviv-based Bank Leumi (LUMI) Le-Israel, said by phone.

The currency weakened 0.3 percent at 3.5289 a dollar as of 14:49 p.m. in Tel Aviv. It had appreciated as much as 0.3 percent before the minister spoke.

The budget deficit this year is likely to be “below 4 percent” of gross domestic product, the finance minister said, compared with the government’s target of 4.65 percent. While the Bank of Israel has predicted growth will slow next year to 3.4 percent from 3.6 percent in 2013, Lapid doesn’t agree.

4% Growth

“I think it can go to 4 percent in 2014, and I think we should fight for this and we will fight for this,” he said.

The strong shekel has led Flug, caretaker governor since former central bank head Stanley Fischer left in June, to step up his policy of buying dollars to curb the currency’s gains. The bank said this month it will buy $3.5 billion next year, up from about $2.1 billion in 2013, to counter the effect of revenue from new natural gas production. In September, the bank bought $600 million more than necessary for the offset.

Lapid and Prime Minister Benjamin Netanyahu nominated Flug to become the next Bank of Israel governor on Oct. 20. The cabinet will be asked to approve her appointment on Sunday.

Eytan Admoni, manager of the financial markets department at the Bank of Jerusalem, said the shekel won’t be tamed unless the government starts taxing profits from “hot money” that flows into Israel for short periods of time, a measure within Lapid’s power.

“There is no significance in Lapid’s saying the shekel is strong,” Admoni said. “If he expects that now people will sell shekels, he is mistaken.”

The Manufacturers Association of Israel urged the government in an e-mailed statement to aspire to an exchange rate of 3.8 shekels to the dollar. Even that rate would be “very low,” the association said, urging the government to help industry pare its costs by cutting electricity, water and property tax rates.